Last edited 07 Aug 2018

Due diligence when selecting contractors or subcontractors

Contents

[edit] Introduction

The financial failure of a contractor or key supplier can be catastrophic to a project.

To reduce exposure to risks it is important to have a thorough grasp of both the capability and financial status of a prospective organisation before appointing them.

Reliance on credit checks involving accounts filed at Companies House can be useful, as can assessments of past track record, but they have their limitations. It is important to understand where the organisation might be exposed to risks through commitments to, or reliance on, third parties, and how secure and well resourced they are given the size of the proposed contract and their other commitments.

The following issues should be evaluated against the proposed scope of works to be undertaken:

[edit] History

  • Track record and appropriate references.
  • Audited accounts.
  • Tax returns.

[edit] Current position

  • Main customers (each expressed as a percentage of total turnover to reveal where there may be significant dependencies).
  • Current contracts in progress including project programmes and values (to assess where there may be significant overlaps that would put the organisation under pressure).
  • Staff resources and CV’S of senior management.
  • Organisation chart.
  • Current debt position with debt expiry dates.
  • Current direct labour resource, including comparisons with previous years.
  • Current subcontractors and suppliers.
  • Details of current warrantees, guarantees, encumbrances, liens, performance or on-demand bonds or charges held by third parties.

[edit] Future position

  • Pipeline work under tender or negotiation.
  • Current unaudited annual accounts in progress.
  • Proposed subcontractors and suppliers.

[edit] Legal position

  • Litigation, claims and other disputes in progress.
  • Ownership of intellectual property, patents, licenses and certification required to carry out the work.
  • Insurances in place.
  • Partnerships or joint ventures with other organisations.
  • Ownership of machinery and facilities required to execute the work.

[edit] Technical capability

[edit] Other indicators

[edit] Find out more

[edit] Step-by-step guidance on appointing a contractor:

[edit] Related articles on Designing Buildings Wiki